In the latter category, I can cite my former client Royal Free Hospital School of Medicine, which was dissolved and whose assets transferred to University College London under the University College London Act 1996 (see section 5 which deals with automatic transfer of property without any assignment). Aug. 2, 1993): [W]here an antitransfer clause in a contract does not explicitly prohibit a transfer of property rights to a new entity by a merger, and where performance by the original contracting party is not a material condition and the transfer itself creates no unreasonable risks for the other contracting parties, the court should not presume that the parties intended to prohibit the merger. Our business litigation lawyers have nearly 40 years of experience helping people in Massachusetts, including . Please contact [emailprotected]. Surprisingly, it may not be enough that the new owner saw or was aware that Tenant was using or occupying the premises. A reverse triangular merger occurs when an acquiror forms a subsidiary and the newly created subsidiary merges with and into the target company. COVID-19 Resources. Use Kiras management features to organize, track, and export results. Accordingly, it is important that the parties identify and address comprehensive anti-assignment clauses early in the process particularly where the contracts to be acquired make up a large portion of a target companys value. An assignment will generally be permitted under the law unless there is an express prohibition against assignment . (The exceptions are (i) contracts that are subject to statutes or public policies prohibiting their assignment, such as intellectual property contracts, or (ii) contracts where an assignment without consent would cause material and adverse consequences to non-assigning counterparties, such as employment agreements and consulting agreements.) If an anti-assignment clause doesnt exclude change of control transactions, a counterparty might materially affect a strategic transaction through delay and/or refusal of consent. The process generally requires preparing the following documents: Aug. 2, 1993): [W]here an antitransfer clause in a contract does not explicitly prohibit a transfer of property rights to a new entity by a merger, and where performance by the original contracting party is not a material condition and the transfer itself creates no unreasonable risks for the other contracting parties, the court should not presume that the parties intended to prohibit the merger. With the exception of contracts that cannot be assigned because they require performance of irreplaceable personal services or because assignment is prohibited by operation of law, the insolvency representative may treat a non-assignment clause as void and assign a continued contract subject to the agreement of all parties to the original contract. An assignment that changes what is expected or impacts the performance of the contract isn't allowed. Many translated example sentences containing "assignment by operation of law" - Spanish-English dictionary and search engine for Spanish translations. While reviewing each of the deal structures that follow, please note that each of the general rules are subject to the exceptions discussed above. The target survives as a wholly-owned subsidiary of the acquiror following the merger, and continues to own its assets, owe its liabilities, and be party to its contracts. [1] [2]. Ch. Applying these principles to deal structures: A general restriction against assignment by a tenant Courts have reasoned . Because there are more ways to transfer a tenant's interest in a lease than an assignment or sublease, most commercial leases provide that the restrictions on assignments and subleases apply to a list of other types of transfers as well. Massachusetts laws. 9 MIN READ, Legal Due Diligence: Evolving Roles, Expanding Benefits, November 23, 2021 - Sample 1. By: Laura Walda & Samantha Duran Commercial l andlords often rely on anti-assignment provisions to restrict the ability of tenants to assign their interest in a lease to a third party. Such provisions often restrict assignments byoperation of law,which are generally considered involuntary assignmentsmandated via acourt order. 5. While simple anti-assignment clauses are generally enforceable, certain types of M&A deal structures effectively circumvent such provisions and, accordingly, the necessity of third-party consents (see the discussion below regarding the impact of M&A deal structures on contract assignment for more detail). See Stein, at 11; see also Dodier Realty & Inv. Cir. The federal anti assignment statutes do not apply to an assignment that arises by operation of law. These provisions often deem a change of control to be a transfer which triggers the landlord's consent rights in the same way that would apply to an assignment of the lease, for example. As noted by the Delaware Court of Chancery in Star Cellular Telephone Co., Inc. v. Baton Rouge CGSA, Inc., 1993 WL 294847, at *8 (Del. ), Im not going to go into any detail regarding the case, as that information is readily available elsewhere. That suggests that if you use the phrase by operation of law, you run the risk of getting into a fight over exactly what it means. [1] Of course, the consequences of termination would have to be thought through and suitably addressed. The sale of some or all of the assets of a company is one method of transferring part or full ownership in the underlying business. Property owned by and, except to the extent that assignment would violate a contractual prohibition on assignment by operation of law, every contract right possessed by each domestic or foreign corporation or eligible entity that merges into the survivor is vested in the survivor without reversion or impairment; 4. The parties apparently conceded that the amalgamation was the equivalent of a merger under Delaware law. Learn how your comment data is processed. I periodically fall foul of my own guidelines, and Im delighted when people point that out. Because courts construe anti-assignment and anti-delegation clauses narrowly, many courts permit involuntary transfer of contracts by operation of law, even if the contract includes a general transfer restriction (see Nat'l Union, 171 Cal. Secure websites use HTTPS certificate. Super. MTA Canada Royalty was the second bite at the apple. So, when the Conditional Payment came due, the selling partys former stockholders, rather than the selling party, sued to collect the Conditional Payment when it was not forthcoming from the buyer. 2013 We hope this blog post will help you navigate the ambiguities of assignment clauses with greater ease by explaining some of the common variations. If you have an issue that deals with the assignment of a contract, the Katz Law Group can help you enforce your rights and protect the interests of your business. Whether mergers and consolidations are transfers by operation of law is an open question. I dont have a solution for this problem that would be generally applicable. But including a prohibition too would provide a remedy if the other party nevertheless tries to assign or delegate, thereby causing you to incur legal fees. It appears that the requirements for triggering the obligation to make the Conditional Payment were satisfied, but because of some transactions undertaken by the selling party, and the impact of an anti-assignment clause in the acquisition agreement, the buyer claimed that the person actually asserting entitlement to that Conditional Payment was not so entitled (indeed, no one was because the selling party had ceased to exist). Assignment by Operation of Law. By continuing to browse this site you are agreeing to our use of cookies.Learn more about what we do with these cookies in our privacy policy. This is much like an exclusion with respect to change of control, since in affiliate transfers or assignments, the ultimate actors and responsible parties under the contract remain essentially the same even though the nominal parties may change. Although the court appears to acknowledge the seeming unfairness of allowing [the buyer] to avoid making a payment it allegedly owes[,] the court nonetheless concludes that it is not this Courts function to save sophisticated contracting parties from an unfair or unanticipated result of their own corporate transactions. After all, [t]he parties could have avoided this result through careful drafting during contract negotiations or by utilizing a different corporate structure when [the selling party and the surviving new entity] combined.[5]. 370 King Street WestBox 67, Suite 500Toronto, OntarioM5V 1J9 Canada, Copyright 2023 Kira Inc. All Rights Reserved. However, under Delaware law, a general prohibition on a party transferring or assigning an agreement does not automatically prohibit a merger involving a contracting party, even one in which the contracting party is not the survivor of such merger. Keep a step ahead of your key competitors and benchmark against them. ASSIGNMENT DEFINITION Assignment is the transfer by an obligee (assignor) of some or all of In a direct stock purchase, the acquiror purchases all the outstanding shares of the target directly from its stockholders. Importantly,the rule is different if the tenant entity does not survive the transaction. while an exclusion could be negotiated by a target company to make it clear that it has the right to assign the contract even though it might otherwise have that right as a matter of law: This Guaranty shall be binding upon the successors and assigns of [Party A]; provided, that no transfer, assignment or delegation by [Party A], other than a transfer, assignment or delegation by operation of law, without the consent of [Party B], shall release [Party A] from its liabilities hereunder. whether an assignment by operation of law is an assignment within. As to what it means, I think it is a sweep-up that may cover oddities, eg: contracts with an individual that may continue when he dies, eg copyright licence agreements? In either case, this illustrates the importance of clear drafting in contracts, and the need for experienced transaction counsel to be involved early in the deal structuring process so that issues like anti . I am grateful indeed. The buyer argued that the anti-assignment clause in the original acquisition agreement was violated when the amalgamation occurred without the buyers consent; and that the successor had no standing to claim the Conditional Payment. Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH, 62 A.3d 62, 88 (Del. Few things are more fundamental to M&A due diligence than determining whether any of the material contracts to which the target is a party require a counterpartys consent as a condition to the proposed acquisition. So what should you do instead? Although contracts are generally freely assignable, in the context of any M&A transaction or other proposed contract assignment, careful consideration should be given to: (1) whether the contract in question includes an anti-assignment provision and, if so, whether the provision is "comprehensive" ( i.e., applies to change of . Assignment is a legal term whereby an individual, the "assignor," transfers rights, property, or other benefits to another known as the " assignee .". What is Kira Would a conversion constitute an assignment by operation of law under such a provision? Assignments by operation of law typically occur in the context of transfers of rights and obligations in accordance with merger statutes and can be specifically included in or excluded from assignment provisions. As a result, the subsidiary survives the merger. COMMENTARY. performance and not the assignment of rights (O.C.G.A. Create your own smart fields to find specific data points using our no-code machine learning tool, Adaptive Workflows banks, insurers) and also have statutory, quasi-judicialpower to transfer obligations to successors. Obtaining third party consents in connection with M&A transactions may create sticky situations or cause costly delays. Accordingly, to assign contracts with comprehensive anti-assignment provisions, the target must seek the consent of the counterparties to each such contract. All liabilities of each . Other Types of Transfers. However, there is considerable variability in . Finally, your construction of neither party may seems to run afoul of the guidance in MSCD 2.150. (And, if you like it, please check out our full guide on Reviewing Change of Control and Assignment Provisions in Due Diligence.). In that regard, I have in front of me Mark Andersons A-Z Guide to Boilerplate and Commercial Clauses, written for an English readership; I hope Markforgives me for not considering just yet how my proposed language squares with the recommendations contained in his chapter on assignment and novation. Incidentally, Mark recently posted this item on IP Draughts about the importance of addressing assignment in IP contracts. Compania Minera Pangea, S.A. de C.V., the Court's conclusion that a Canadian amalgamation had the same legal effect as a Delaware merger resulted in a dismissal of the plaintiff's claim for relief. 8, 2013), the Delaware Court of Chancery held that a reverse triangular merger does not result in an assignment of the assets of the surviving entity by operation of law. This can occur through a merger, consolidation or acquisition. Saying that any assignment or delegation in breach will be void might be enough by itself. Based on 28 documents. This section will examine the treatment of contractual rights in connection with four common M&A structures: (i) reverse triangular mergers, (ii) forward-triangular mergers, (iii) stock purchases, and (iv) asset purchases. MGL c.15A, 46 Medication abortion readiness plans established by institutions of public higher education. For all other contracts, parties may want an anti-assignment clause that allows them the opportunity to review and understand the impact of an assignment (or change of control) before deciding whether to continue or terminate the relationship. 2020-1715, -1716 (Fed. The structure employed in a given M&A transaction is critical to determining the treatment of the target companys various contractual rights. In a reverse triangular merger, simple anti-assignment clauses generally are not triggered because, as a matter of law, no assignment of the contract has occurred (the target company survives and is the same legal entity as the original contracting party). This concept is used in both contract and property law. History of Contract Law. Merchants Service Co. v. Small Claims Court, 35 Cal. Someone who knows this law better than me might be able to comment on whether that would include, for example, a lease to either real property or capital equipment. MTA Canada Royalty involved a claim by a successor to a selling party under an acquisition agreement for payment by the buyer of a Conditional Payment owing to the selling party if the mining property sold pursuant to that agreement remained in operation after a date certain. Official websites use .mass.gov. The Venture Alley is edited by Trent Dykes and Andrew Ledbetter, corporate and securities lawyers at DLA Piper. [2] [1] The transaction was an amalgamation under Canadian law, which the parties and the Court agreed was the equivalent of a merger under Delaware law. Anti-Assignment Clause Prohibiting Assignment by Operation of Law Applies to Subsequent Merger. Learn how Kira dentifies, extracts, and analyzes content in your contracts and documents, Patented Machine Learning Technology My late partner and mentor Tom Arnold was of the school of thought that contracts per se are historical facts and can never be terminated only specific rights and duties can be terminated. Our partners allow us to transform how teams work with their contracts. Accordingly, non-exclusive IP license rights pertaining to copyright, trademark, and patent licenses are generally considered non-assignable, unless specific consent is given by the non-assigning party. DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Nonetheless, [w]hen an anti-assignment clause includes language referencing an assignment by operation of law, Delaware courts generally agree that the clause applies to mergers in which the contracting company is not the surviving entity.[3] Here the anti-assignment clause in the original acquisition agreement did purport to include a prohibition on assignments by operation of law.[4] And, although Delaware has recognized that a merger in which the contracting party is the survivor (a reverse triangular merger) is not an assignment by operation of law because the contract rights remain with the contracting party and do not pass to another entity, the amalgamation here resulted in a new entity acquiring the contract rights of the original selling party and the original selling party ceasing to exist. 6305.; Mergers and stock sales have been variously treated by some courts and care should be . No. Sept. 16, 2020), is a stark reminder of the importance of carefully analyzing change of control/anti-assignment provisions and taking advantage of all available structuring alternatives to avoid untoward results that can occur from completing an acquisition deemed to require a counterpartys consent. Terms of Service And, of course, if an assignment had occurred it was prohibited by the anti-assignment provision in the agreement creating the Conditional Payment Obligation. Saying that a court-ordered assignment will be void wont work if the law overrides any restriction on assignment. The assignment is against the law. Kira Systems, Although not nearly as complex as change of control provisions, assignment provisions may still present a challenge in due diligence projects. Get the latest views and developments in the private equity world from the Global Private Equity Watch team at Weil. Dont simply prohibit assigning the entire contracta court might construe that as prohibiting just delegation of duties. The court pointed out that in Ohio, the surviving corporation in a merger is responsible for all obligations of the constituent corporation. For example, where the non-merging entity is a competitor to the acquiring entity, courts may find that given the high risk and burden to the non-merging party, the assignment is ineffective on equitable grounds. Courts have found that these types of agreements are not freely assignable as a matter of public policy because assigning personal contracts may result in materially adverse consequences (e.g., a material change in duty, risk, or burden) to the non-assigning party. ; Inv seems to run afoul of the counterparties to each such contract an open question using! The assignment by operation of law massachusetts pointed out that in Ohio, the target companys various rights! 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